After World War II the scope of western public sectors expanded significantly. Rapidly growing international economic integration in the 1980s has cast doubt on the sustainability of broad government involvement in the economy. In contrast, public sectors are rather retrenching in the face of globalization challenges. This paper first reexamines Cameron’s (1978) multiple regression model on the reasons for expanding public sectors in 18 OECD economies between 1960 and 1975. It initially confirms his results and also Rodrik’s (1997, 1998) claim that increasing openness to international trade induces governments to increase expenditure in order to counter rising external dependency. Furthermore, the results confirm the hypothesis that this policy path is more likely when left parties are in power. Secondly, this paper extends Cameron’s study by using panel data for the same 18 nations between 1960 and 2006. By applying a fixed effects model, the paper finds contradictory results on the effects of trade on government expenditure. The ratio of Imports and Exports to GDP has an inverse relationship to the scope of the public sector and therefore strongly confirms the economic argument that governments retrench the public sector in the face of globalization.
|Item Type:||Working paper|
|Faculties / Institutes:||The Faculty of Economics and Social Studies > Institute of Political Science|
|Subjects:||320 Political science|
|Controlled Keywords:||Staatstätigkeit, Öffentliche Ausgaben, Globalisierung|
|Uncontrolled Keywords:||Staatsausgabenpublic sector , government spending , globalization , economic integration , trade openness|